TowerGroup estimates that IT spending on operational risk management will nearly double between 2004 and 2007, rising from $5.2 billion to $8.2 billion as recent regulatory mandates, the increasing complexity and diversification of financial services firms and corporate scandals force financial services institutions to adopt a more dynamic, process-oriented discipline of enterprise risk management.
Unfortunately, how most financial institutions approach risk management remains highly fragmented across risk types, business lines and financial services products. TowerGroup estimates that financial institutions could incur increases in compliance waste of up to 25% over the next five years.
TowerGroup also says banks need to consider holistic regulatory requirements such as Basel II and Sarbanes-Oxley, which share many common requirements of operational risk controls and data integration. IT investments should also be made in tandem and occur across the enterprise, based on a continuous framework and process to ensure ongoing compliance with both mandates.
In TowerGroup’s new research report titled, “The Avant-Garde of Enterprise Risk Management in Financial Services: From Vision to Value,” Virginia Garcia, a senior analyst in the Financial Services Strategies & IT Investments practice at TowerGroup and author of the research, discusses how financial services firms are taking steps to achieve enterprise risk management and explores the potential implementation challenges they face.